By Rick Rivera, MBA/MPP Candidate 2018
The Long Haul: How the Jones Act Impedes Puerto Rican Recovery Efforts (and What You Can Do About It)
I’ve turned a corner. In the days leading up to and shortly after Hurricane Maria, I had faith that loss of life would be minimal, given that Puerto Ricans have weathered hurricanes before with minimal loss of life and livelihood.
However, it’s clear now that Maria is a completely different beast. It’s a bonafide humanitarian crisis. Between container ships not being offloaded and FEMA requiring online registration for aid when most people don’t have power, we all know that recovery will not be quick, and that true recovery will not be possible with just short-term federal aid and charitable giving.
We all know that to rebuild the Island, Puerto Ricans will need ready access to supplies, food, and fuel — and that isn’t happening nearly at the rate and volume it should be. Just as critically, Puerto Rico will need capital, long-term capital. However, given the debt crisis and a federal government controlled by, let’s say, less-than-empathetic people, Puerto Rico is on its own when it comes to generating that capital. Hedge funds have offered new loans at even more extortionate terms, and the Puerto Rican government has been right to turn them down. What will be necessary are increased government revenue and private investment.
In other words, reconstruction of the Island is going to require bringing the Puerto Rican economy back, not just to where it was before Maria, but to a place it hasn’t been in decades. However, such efforts will be impossible if the raw materials for economic stabilization and the goods that consumers would purchase to support themselves and their economy cost at least a third, and often double what they do on the mainland, an effect of the Jones Act.
Let’s unpack that a bit more.
The 97-year-old Jones Act — also known as the Merchant Marine Act of 1920 — stipulates that any maritime shipment between US States or Territories must be done using US Merchant Marine ships, that is, ships built in America, with American crews, registered in America. Under normal circumstances, this simply means that any products coming into Puerto Rico must be shipped to Jacksonville, Florida, unloaded from their containers, then reloaded onto a Merchant Marine ship. Cargo that does not go through this process faces huge tariffs, long delays in customs, and extensive security inspections. This is troubling enough when the people of Puerto Rico aren’t desperate for supplies.
Right now, over and above the significant issues with simply transporting relief into areas where bridges and roads have washed away, Puerto Ricans must also deal with bureaucratic delays and denials. Prior to the 10-day waiver of the Jones Act, the Island’s government found itself obligated to let supplies brought on foreign vessels languish at the Port of San Juan, if not turn them away entirely due to the cost imposed by import tariffs (yes, even on donations). While the waiver was in effect, non-US ships could come in, but the devastated labor and physical infrastructure prevented offloading. With the Jones Act waiver having expired yesterday, we are back to square one.
Even if distribution is improved, Puerto Rico still faces a significant political and economic challenge going forward. The Jones Act, after all, doesn’t affect most states, since, here on the mainland, we tend to use overland shipping, but it creates much higher prices for outlying territories. According to The Grassroot Institute, a Hawai’ian think-tank affiliated with the Cato Institute, the Jones Act costs consumers, primarily in Puerto Rico, Hawai’i, and Alaska $500,000,000 every year.
Have you ever wondered why things are so expensive in Hawai’i? Why Puerto Rico has such struggles establishing domestic industry? You now have your answer.
The Jones Act has got to go in order for Puerto Rico to truly recover.
So, what can we do?
I’m setting out a series of talking points that you can use to write to your congressperson (or to discuss if you’re brave/patient enough to call). When putting these together, I’ve tried to come up with points that could potentially appeal to politicians across the spectrum, from those that support aid for its own sake to those who only want to know what’s in it for their constituents.
RECOMMENDED TALKING POINTS
Talking Points Around Economic Fairness for Puerto Rico:
- The Jones Act’s restrictions on which ships can transport goods between US ports, also known as “cabotage”, have been increasing prices on basic necessities such as food and fuel by 30 to 100 percent for almost a hundred years.
- Puerto Rico will need lumber, concrete, steel, and other building supplies in order to rebuild, most of which would need to be imported at inflated prices and/or limited quantities under the Jones Act.
- Thanks to the Jones Act, cost of living for Puerto Ricans is 13% higher than on the mainland, while uncompetitive domestic industry means the per-capita income is 68% lower.
- A University of Puerto Rico study found that Puerto Rican consumers lose $537 Million per year to costs associated with the Jones Act.
Talking Points Around how the Jones Act Affects American Voters & Free Markets:
- The Jones Act doesn’t just affect American citizens in Puerto Rico. Residents of Hawai’i and Alaska experience similar price pressures. Residential power in Hawai’i costs $0.30 per kilowatt hour, almost 60% higher than the mainland average.
- Americans on the mainland are also affected. While we can send products to other countries using the least expensive available shipping (regardless of their country of affiliation), interstate shipping can only be done with American vessels. For example, it costs $6 per barrel to ship oil by sea from Texas to New York on an American vessel, but only $2 to ship it to London on, say, a Danish or Taiwanese vessel.
- Shipping by sea emits half the amount of carbon dioxide as rail transport, and nearly 1/6th that of shipping by truck. When we consider these greenhouse effects in addition to the increasing use of oil pipelines for long distance transport, it’s clear we’re all paying an environmental price.
- The Grassroot Institute also estimated that the combined yearly losses due to the Jones Act across all states and territories are between $5 and $15 Billion.
Talking Points Around the Jones Act’s Inefficiencies and Anti-Free Market Effects
- Because they don’t have to compete internationally, American shippers have fallen behind in new ship construction and maintenance. The US has only 0.39% of the container shipbuilding market. That’s less than one half of one percent of global output.
- In 2008, Jones Act shipping firms Sea Star, Crowley, and Horizon were found guilty of conspiracy in a price-fixing scheme that specifically targeted Puerto Rico. The former president of Sea Star served five years in prison based on this conviction.
- Sea Star and Horizon have also paid $3.4 Million in settlements in a whistleblower case that also alleged price-fixing in government shipping contracts between the US and Puerto Rico.
- Horizon by itself paid over $32 Million in antitrust suit settlements related to all Jones Act operations between 2008 and 2011, including $15 Million in 2011 for offenses in Puerto Rico alone.
Tips for Writing Your Congressperson to Repeal the Jones Act
As for the letter itself, be sure to be respectful and, if possible, data-driven. Keep it short, but make sure to use your own words! Follow this general structure:
- A paragraph introducing yourself and why you’re writing.
- A paragraph with supporting arguments for why you oppose the Jones Act/Support efforts by John McCain (R-AZ) and Mike Lee (R-UT) in the Senate and/or Nydia Velazquez (D-NY) and Darren Soto (D-FL) in the house to repeal the Act. Obviously, if your representative is Republican, you’ll want to focus on McCain and Lee. For Democrats, you could probably risk going bipartisan.
- A paragraph with your ask.
More letter-writing tips and best practices can be found at ThoughtCo.
Don’t know your congressperson or their address? GovTrack has an easy tool.
Oh, and for God’s sake, send a physical letter. Type it, print it out, sign it, and put it in an envelope. No shortcuts.
There is too much at stake to take the easy way out.
Rick Rivera is a 2018 MBA/MPP Candidate at the Lorry I Lokey School of Business and Public Policy, as well as Editor-in-Chief of The Policy Forum. Born and raised in Puerto Rico, he wants to remind everyone that there are 3.4 million Americans on the Island that need our help.